Decoupling FAQs

​​1. What is decoupling?​​

Revenue decoupling separates the link between utility revenues and how much gas customers use.

Decoupling is an accounting tool that ensures that utilities collect the amount of revenue that has been approved by the Minnesota Public Utilities Commission (MPUC) – no more and no less.

Decoupling does not apply to the wholesale commodity cost of natural gas; rather, the cost to deliver the natural gas safely and reliably to cust​omers and to maintain the delivery system.

With decoupling, the MPUC establishes a fixed amount of revenue that CenterPoint Energy may earn each year and adjusts the per therm natural gas rate once each year to make ​up for any shortfall or excess in sales revenue.

For example, under revenue decoupling, if total actual natural gas sales were higher than expected in a given year, the utility would lower rates slightly the next year to refund customers the ‘extra’ revenue from the additional usage. If gas sales were lower than utilities and regulators expected in a given year, the utility would increase rates slightly the next year to make up the difference.

The purpose of revenue decoupling is to remove the motivation for CenterPoint Energy to sell more gas so that the company can promote energy efficiency and conservation, while also maintaining the revenue required to provide safe and reliable natural gas service.

CenterPoint Energy’s new revenue decoupling pilot program will start with July 2015 usage and the first decoupling rate adjustment will appear on customer bills in fall 2016.

2. How does decoupling work?​

Decoupling breaks the link between utility revenues and how much gas customers use, which removes the motivation for utilities to increase the amount of natural gas they sell. Without the motivation to increase natural gas sales, the utility can focus on promoting conservation while earning sufficient revenue to cover the fixed costs incurred while providing safe and reliable service.

​In a rate case, the MPUC determines how much revenue the utility may collect to cover the cost of providing service. With decoupling, rates are adjusted as total gas sales vary to allow recovery of the approved revenue amount.

​​Unlike traditional rates, under decoupling the utility will not make additional profits from higher natural gas sales. Decoupling does not guarantee the utility a profit, only a specific level of revenue. The utility must still work to contain costs to have profitability.

​​Any adjustment to customer bills for decoupling is expected to be small. Individual bills for the cost of gas will still be based on the amount of gas a customer uses, so customers will still have an incentive to conserve and use natural gas efficiently.​

3. Why decoupling?​

Decoupling removes the motivation for CenterPoint Energy to increase natural gas sales and allows the company to encourage conservation of natural gas, while still maintaining the revenue necessary to provide safe and reliable service. ​

Without decoupling, CenterPoint Energy’s ability to recover its costs associated with running the gas system – otherwise known as fixed costs – depends upon selling a set volume of gas. If sales are higher than expected, CenterPoint Energy recovers more revenue than it needs to pay for its fixed costs. If sales are lower than expected, CenterPoint Energy recovers less revenue than is required to pay for those costs. Such a model creates a financial incentive for CenterPoint Energy to have customers use more natural gas and a strong financial disincentive to encourage its customers use less natural gas.

4. How is decoupling different from a traditional utility rates?​​

​Traditional utility rates work similarly to how most products are sold – the more products are sold, the more money is made. With traditional rates, the more gas used by utility customers, the more money the utility collects. ​

Decoupling breaks the link between utility revenues and how much gas customers use. This allows utilities to better support increased energy efficiency and conservation.

5. Is my bill based on how much gas I use?​​

Your individual customer bill is still b​ased on the amount of gas you use, so you will still save money by conserving gas. For example, if Mr. and Mrs. Smith normally consume 100 therms of natural gas per month, or 1,200 therms per year, and reduce their usage by 5 percent, they will not pay the associated $0.66/therm cost of natural gas on the 60 saved therms, which means they save about $40.00 per year. Even with a decoupling adjustment of a one percent surcharge on their annual bill, Mr. and Mrs. Smith still realize net savings of $30.00 per year.

MODES​T DECOUPLING ADJUSTMENT:​​ SURCHARGE

​Year 1

Customer uses100 /month

Annual

Year 2

Year 2

Year 2

Bill Impact

Line

Description

Final Rate

Rate

w/ Decoupling

w/ Decoupling

No.

$ / Therm

$ / Therm

Uses 5% less

(a)

(b)​

(c)

(d)

(e)

(f)

(g)

(h = g - d)

1

therms

1200

1200

1140

60

2

FIRM:

3

Residential​

4

Basic Charge

$9.50

$9.50

$9.50

$9.50

$9.50

$0.00

5

Delivery Charge(w/o CCRA)

$0.17744

$212.93

$0.17744

$212.93

$202.28

($10.65)

6

Decoupling Adjustment

$0.00000

$0.00

$0.00800

$9.60

$9.12

$9.12

7

GAP Charge

$0.00519

$6.23

$0.00519

$6.23

$5.92

($0.31)

8

Cost of Gas

$0.47740

$572.88

$0.47740

$572.88

$544.24

($28.64)

9

Total Effective Rate

$0.66003

$801.54

$0.66803

$811.14

$771.06

($30.48)

Any increase or decrease due to decoupling is expected to fall within 2 percent of the natural gas retail rate and will depend on a number of factors, including changes in gas sales.

6. Will CenterPoint Energy make more if customers use more gas?​

No, CenterPoint Energy will not make additional profit if customers use more gas. The company is only allowed to make the level of revenue approved by the MPUC. If, in total, customers use more gas in a given year, CenterPoint Energy will provide a refund to customers the next year through the decoupling adjustment factor. The MPUC will review CenterPoint Energy’s revenue and decoupling adjustment factor each year.

7. Will rates go up for customers that reduce consumption?​

No, bills will not go up for customers that reduce consumption. For example, if Mr. and Mrs. Smith normally consume 100 therms of natural gas per month, or 1,200 therms per year, and reduce their usage by 5 percent, they will not pay the associated $0.66/therm cost of natural gas on the 60 saved therms, which means they save about $40.00. ​

8. How much can my bill fluctuate due to the implementation of the decoupling mechanism?​

A
Decade of Decoupling for US Energy Utilities​, summarizes the decoupling mechanisms utilities use and the rate adjustments they have made under those mechanisms. In total, the report estimates the retail rate impacts of 1,244 decoupling mechanism adjustments since 2005. These rate adjustments, the report finds, are mostly small (within +/- 2% of retail rates) and yield both refunds and surcharges.

There is a cap on potential surcharges (but no cap on potential refunds). The potential surcharge is capped at 10 percent of non-gas margins (not including what is recovered for our Conservation Improvement Program costs). The cap is calculated for each class, and for residential customers it is approximately $2/month. Keep in mind that the cap only matters if overall customer usage decreases – in fact, for the cap to be reached, on average residential customers as a whole would need to use about 18 percent less natural gas (than what was assumed when rates were set).

9. What is a decoupling adjustment?​

A decoupling adjustment allows CenterPoint Energy to increase its rates if the company recovers less than its approved revenue in a given year or decrease rates if the utility recovers more than the approved revenue. This means that if CenterPoint Energy falls short of the MPUC approved revenue requirement, the next year the decoupling factor will increase rates slightly to make up for the difference between approved revenue and revenue that was actually recovered. If the utility recovers more in rates than the approved revenue requirement, the company would decrease rates the next year to pay customers back over time.

10. Is decoupling new? Are other states decoupled?

​​Decoupling is relatively new in Minnesota, but revenue decoupling has been used in other states for over 10 years. The utility commissions in nearly half of the 50 states have approved decoupling in some form for one or more of their utilities. ​

​​​​CenterPoint Energy had a previous partial decoupling pilot program, which began in 2010 and will end in the first half of 2015. The new, upcoming full decoupling pilot will apply to more customer classes and will not adjust for ups and downs in weather.

11. Does decoupling guarantee a profit for CenterPoint Energy?​

Decoupling does not guarantee profits for CenterPoint Energy. Decoupling ensures that CenterPoint Energy retains no more and no less revenue than what is authorized by the MPUC. Under decoupling, a utility cannot increase profits by increasing sales.

12. When will decoupling be implemented?​​

CenterPoint Energy will be decoupled starting on July 2015. However, customers won’t see a decoupling adjustment factor on their bills until September of 2016. ​

13. How often will the decoupling adjustment/factor change?​

The decoupling adjustment/factor will change once per year in September. ​

14. Wasn’t CenterPoint Energy already applying a decoupling adjustment to my bill? How was that different from the current decoupling program?​​

CenterPoint Energy previously had a partial decoupling pilot, which ended in June 2013, but the adjustment factor continued to appear on customer bills until revenue was fully trued-up in early 2015.

The new revenue decoupling pilot program differs from CenterPoint Energy’s previous decoupling pilot in a few ways:

First, the previous pilot adjusted actual revenue and usage to remove the impact of weather. This meant that if usage went up or down because the weather was colder or warmer than ‘normal,’ before any revenue decoupling adjustment was calculated, we estimated what usage would have been if the weather had been ‘normal.’ This could lead to a refund to customers even if overall usage was down (if it was warmer than ‘normal’) or a surcharge to customers even if overall usage increased (if it was colder than ‘normal’).

Secondly, the previous pilot program applied to fewer customer groups than the new decoupling pilot program.

Lastly, the calculation of the cap on the adjustment factor has been changed from the prior pilot. The MPUC put a cap on the amount that CenterPoint Energy can surcharge customers in years where the rate case approved revenue was not achieved. The surcharge is capped at 10 percent of the utility’s non-gas commodity costs, which is equal to approximately 3 to 4 percent of a customer’s total bill. There is no cap on the amount that CenterPoint Energy must refund customers in years where the company recovers more than the rate case approved revenue. ​

15. How does the decoupling adjustment differ from the Conservation Cost Recovery Adjustment (CCRA)?

The decoupling adjustment is used to make sure that CenterPoint Energy recovers no more and no less than the revenue that was approved in the last rate case; so that if customer usage goes up (or down), the company still collects the revenue needed to maintain a safe and reliable distribution system. The CCRA is used to make sure that the costs of our Conservation Improvement Programs (CIP) programs are recovered. ​​​